The PNG LNG Project is the largest private investment in PNG with benefits that will have a positive and long-lasting impact on the whole country.
Benefits include direct and indirect opportunities:
- Direct benefits include royalties, dividends, equity entitlements and a development levy
- Indirect benefits are employment, training, business development as well as infrastructure development / enhancement including roads, bridges, schools, clinics, and other community initiatives
The PNG LNG Project Umbrella Benefits Sharing Agreement (UBSA) is an overarching agreement that outlines how a number of the State’s Project revenue streams will be shared with Project area landowners, local level governments and provincial governments.
The agreement ensures fair distribution of the benefits and was negotiated and executed between the State of PNG, landowners and local government representatives in May 2009.
The UBSA was negotiated at a development forum, which was required under the Oil and Gas Act as a precondition of award of licenses for development of the Project.
Key points of the UBSA include:
- Royalty: A royalty benefit of 2 percent is provided by the State to landowners, affected provincial governments and local level governments. Royalty is calculated on a ‘wellhead value’ basis per the terms of the Oil and Gas Act and will apply to volumes produced and then sold from the licensed area(s).
- Equity: The UBSA provides a total of 2.7 percent free equity participating interest in PNG LNG to Project area landowners and local level governments for greenfield areas. UBSA also provides to Project area landowners and provincial governments the opportunity to buy-into indirect PNG LNG equity up to a collective maximum of 4.22 percent between 1 January and 30 June 2016.
- Development Levy: A Development Levy of 2 percent of the wellhead value, calculated per the provision of the Oil and Gas Act and the LNG Gas Agreement, is available to the provincial governments and the local level governments.
- Infrastructure Development Grants (IDG): An amount of K1.2 billion has been allocated by the State equally over two five year periods, commencing in 2010 for infrastructure development and maintenance in the affected Project areas and provinces.
- Business Development Grants (BDG): The State has provided K120 million to assist landowner companies in business development activities under the PNG LNG Project.
Following on from the UBSA, license-based benefits sharing agreements (LBBSA) were completed in early December 2009. These agreements outline how landowners within each license area will allocate their share of the Project’s benefits.
The LBBSAs were completed to the satisfaction of the government, consequently allowing the Minister for Petroleum and Energy to issue Petroleum Development Licenses, a Pipeline License and a Petroleum Processing Facility License to the Project on 8 December 2009.
The benefits sharing agreements are agreements between the landowners, local level governments, provincial governments and the State of PNG, and address the distribution of benefits, including those received by the State under the Oil and Gas Act, to the various governments and landowners.